Precious Metals

     

 

 

Turn on, Tune in, Drop out

Back in the drug-soaked, if not halcyon, days known at the sexual and drug revolution—the 1960’s—many people were on a quest for the “perfect trip”, and the “perfect hit of acid” (the drug lysergic acid diethylamide, LSD).

 

Dr. Albert Hoffman and his famous bicycle ride through Basel after he ingested a few drops of LSD-25 by mistake. The photograph in the middle was taken at the Woodstock festival and inter alia serves as a reminder that monetary inflation has a considerable effect on the purchasing power of the US dollar over time. [PT]

 

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The Lighthouse Moves

Picture, if you will, a brick slowly falling off a cliff. The brick is printed with green ink, and engraved on it are the words “Federal Reserve Note” (FRN). A camera is mounted to the brick.

The camera shows lots of things moving up. The cliff face is whizzing upwards at a blur. A black painted brick labeled “oil” is going up pretty fast, but not so fast as the cliff face. It is up 26% in a year.

A special brick, a government data brick of sorts, labeled “CPI-U” has been going up ever so slowly. At least according to the camera on the FRN brick.

 

US headline CPI y/y: slightly above the official “target” since September 2017. [PT]

 

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Irredeemably Yours… Yuan Stops Rallying at the Wrong Moment

The so-called petro-yuan was to revolutionize the world of irredeemable fiat paper currencies. Well, since its launch on March 26 — it has gone down. It was to be an enabler for oil companies who were desperate to sell oil for gold, but could not do so until the yuan oil contract.

 

After becoming progressively stronger over the past year, it looks as thought the 6.25 level in USDCNY is providing support for the US dollar. In fact, this was a resistance level in 2014 – 2015, which was first overcome in early August 2015, when the yuan weakened sharply. If we are not misinterpreting something, Beijing has hinted in veiled terms at possibly deploying its fairly tight control over the non-convertible currency’s exchange rate as a weapon in the ongoing trade dispute with the US. If so, the yuan may well weaken after its one-year long bout of strength. We get the thought process behind the quasi gold convertibility thesis, but we are not quite sure how it would work in practice (i.e., would one actually be able to move physical gold out of China willy-nilly if it were delivered against a yuan-denominated futures contract held by a foreigner? We have not really seen a detailed explanation of the mechanics of this type of transaction, but that may well be our fault for not making enough of an effort to search it out) [PT]

 

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The Global Community is Unhappy With the Monetary System, Change is Coming

Our friend Claudio Grass of Precious Metal Advisory Switzerland was recently interviewed by the X22 Report on cryptocurrencies and gold. He offers interesting perspectives on cryptocurrencies, bringing them into context with Hayek’s idea of the denationalization of money. The connection is that they have originated in the market and exist in a framework of free competition, with users determining which of them will be winners and losers.

 

Claudio Grass

 

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The Long Run is Here

The dollar is failing. Millions of people can see at least some of the major signs, such as the collapse of interest rates, record high number of people not counted in the workforce, and debt rising from already-unpayable levels at an accelerating rate.

 

Total US credit market debt has hit a new high of $68.6 trillion at the end of 2017. That’s up from $22.3 trillion a mere 20 years ago. It’s a fairly good bet this isn’t sustainable. [PT]

 

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Smoke Signals

Gold went up by 33 of the Master’s Notes, but silver went up only 22 of the His Cents.

 

Decrepit though he may be… it’s still his funny money, and he always wants more of it. [PT]

 

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Speculators Throw the Towel

Over the past several years we have seen a few amazing moves in futures positioning in a number of commodities, such as e.g. in crude oil, where the by far largest speculative long positions in history have been amassed. Over the past year it was silver’s turn. In April 2017, large speculators had built up a record net long position of more than 103,000 contracts in silver futures with the metal trading at $18.30. At the end of February of this year, they held their first net short position in 14 years (!) with silver trading at $16.43. This is highly unusual.  Here is a short term chart of the net positions of hedgers and large speculators:

 

The net speculative and net hedger positions in silver futures have undergone huge swings lately – while prices moved only very little. Consider the much smaller net speculative position at the market top near $50 in April 2011 compared to the peaks seen since early 2016 and especially last year. We suspect that there must have been huge inflows into CTAs given how much larger reportable speculative positions in many commodity futures have become in recent years. Note that the trading strategies employed by such funds rely almost exclusively on technical signals and most of them are trend-followers (a few systems with mean-reversion overlays exist as well). Often there is no longer any human intercession, instead computer algorithms decide what and when to buy and sell. Of course such computerized trading systems are still programmed by humans – they are merely more likely to strictly stick to the rules of whatever trading strategy is implemented (humans are known for frequently second-guessing their own trading rules). As a result of this, herding effects are very likely actually magnified.

 

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Ballistically Yours

One nearly-famous gold salesman blasted subscribers this week with, “Gold Is Going to Go Ballistic!” A numerologist shouted out the number $10,000. At the county fair this weekend, we ran out of pocket change, so we did not have a chance to see the Tarot Card reader to get a confirmation.

The market criers are back in gold town [PT]

 

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Object of Speculation

The prices of the metals fell last week, $22 and $0.24 respectively. It’s an odd thing, isn’t it? Each group of traders knows how gold “should” react to a particular type of news. But they all want the same thing — they want gold to go up. And when it doesn’t, many hesitate to buy. Or even sell. This is why speculation cannot set a stable price (I’m talking to you, bitcoiners).

 

Everybody wants gold to grow wings. Unfortunately it’s rather heavy, especially lately. [PT]

 

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Opportunities in the Junior Mining Sector

Maurice Jackson of Proven and Probable has recently interviewed Jayant Bandari, the publisher of Capitalism and Morality and a frequent contributor to this site. The topics discussed include currencies, bitcoin, gold and above all junior gold stocks (i.e., small producers and explorers). Jayant shares some of his best ideas in the segment, including arbitrage opportunities currently offered by pending takeovers – which is an area that generally doesn’t receive much attention, but seems to harbor quite a bit of potential.

 

Jayant Bandari at the at the Sprott Natural Resource Symposium in Vancouver in 2017.

 

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Contradictory Palaver

The recent hullabaloo among President Trump’s top monetary officials about the Administration’s “dollar policy” is just the start of what will likely be the first of many contradictory pronouncements and reversals which will take place in the coming months and years as the world’s reserve currency continues to be compromised.  So far, the Greenback has had its worst start since 1987, the year of a major stock market reset.

 

A modern-day reenactment of the famous “our currency, your problem” play that went over so extremely well in the 1970s… [PT]

 

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Short and Long Term Forecasts

Predicting the likely path of the prices of the metals in the near term is easy. Just look at the fundamentals. We have invested many man-years in developing the theory, model, and software to calculate it. Every week we publish charts and our calculated fundamental prices.

 

A selection of 1 and ½ ounce gold bars – definitely more fondle-friendly than bitcoin, but a bit more cumbersome to send around. [PT]

 

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Most read in the last 20 days:

  • Trade War Game On!
      Interesting Times Arrive “Things sure are getting exciting again, ain’t they?”  The remark was made by a colleague on Tuesday morning, as we stepped off the elevator to grab a cup of coffee.   Ancient Chinese curse alert... [PT]   “One moment markets are gorging on financial slop like fat pigs in mud.  The next they’re collectively vomiting on themselves. I’ll tell you one thing.  President Trump’s trade war with China won’t end well.  I mean, come...
  • The Dollar Cancer and the Gold Cure
      The Long Run is Here The dollar is failing. Millions of people can see at least some of the major signs, such as the collapse of interest rates, record high number of people not counted in the workforce, and debt rising from already-unpayable levels at an accelerating rate.   Total US credit market debt has hit a new high of $68.6 trillion at the end of 2017. That's up from $22.3 trillion a mere 20 years ago. It's a fairly good bet this isn't sustainable....
  • US Stock Market: Happy Days Are Here Again? Not so Fast...
      A “Typical” Correction? A Narrative Fail May Be in Store Obviously, assorted crash analogs have by now gone out of the window – we already noted that the market was late if it was to continue to mimic them, as the decline would have had to accelerate in the last week of March to remain in compliance with the “official time table”. Of course crashes are always very low probability events – but there are occasions when they have a higher probability than otherwise, and we will...
  • Rise of the Japanese Androids
      Good Intentions One of the unspoken delights in life is the rich satisfaction that comes with bearing witness to the spectacular failure of an offensive and unjust system. This week served up a lavish plate of delicious appetizers with both a style and refinement that’s ordinarily reserved for a competitive speed eating contest. What a remarkable time to be alive.   It seemed a good idea at first... [PT]   Many thrilling stories of doom and gloom were published...
  • Claudio Grass on Cryptocurrencies and Gold – An X22 Report Interview
       The Global Community is Unhappy With the Monetary System, Change is Coming Our friend Claudio Grass of Precious Metal Advisory Switzerland was recently interviewed by the X22 Report on cryptocurrencies and gold. He offers interesting perspectives on cryptocurrencies, bringing them into context with Hayek's idea of the denationalization of money. The connection is that they have originated in the market and exist in a framework of free competition, with users determining which of them...
  • No Revolution Just Yet - Precious Metals Supply and Demand Report
      Irredeemably Yours... Yuan Stops Rallying at the Wrong Moment The so-called petro-yuan was to revolutionize the world of irredeemable fiat paper currencies. Well, since its launch on March 26 — it has gone down. It was to be an enabler for oil companies who were desperate to sell oil for gold, but could not do so until the yuan oil contract.   After becoming progressively stronger over the past year, it looks as thought the 6.25 level in USDCNY is providing support for the...
  • The “Turn of the Month Effect” Exists in 11 of 11 Countries
      A Well Known Seasonal Phenomenon in the US Market – Is There More to It? I already discussed the “turn-of-the-month effect” in a previous issues of Seasonal Insights, see e.g. this report from earlier this year. The term describes the fact that price gains in the stock market tend to cluster around the turn of the month. By contrast, the rest of the time around the middle of the month is typically less profitable for investors.   Due to continual monetary inflation in the...
  • Flight of the Bricks - Precious Metals Supply and Demand
      The Lighthouse Moves Picture, if you will, a brick slowly falling off a cliff. The brick is printed with green ink, and engraved on it are the words “Federal Reserve Note” (FRN). A camera is mounted to the brick. The camera shows lots of things moving up. The cliff face is whizzing upwards at a blur. A black painted brick labeled “oil” is going up pretty fast, but not so fast as the cliff face. It is up 26% in a year. A special brick, a government data brick of sorts, labeled...
  • Getting High on Bubbles
      Turn on, Tune in, Drop out Back in the drug-soaked, if not halcyon, days known at the sexual and drug revolution—the 1960’s—many people were on a quest for the “perfect trip”, and the “perfect hit of acid” (the drug lysergic acid diethylamide, LSD).   Dr. Albert Hoffman and his famous bicycle ride through Basel after he ingested a few drops of LSD-25 by mistake. The photograph in the middle was taken at the Woodstock festival and inter alia serves as a...

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